Data centers and their growing impact on the re/insurance sector

Data centres are scaling rapidly, but so are the concentrations of value and interconnected risks behind the digital economy. Marsh Re experts examine their growing impact on the re/insurance sector.

Key points:
Outages can trigger multi-sector losses
Accumulation risk harder to manage
AI growth intensifies infrastructure strain

By Josh Darr, head of global peril advisory, Marsh Re

Data centers have moved from being a niche part of the digital economy to a critical piece of global infrastructure. As cloud computing, streaming, and artificial intelligence continue to expand, data centers are increasingly being viewed as a “fourth utility,” alongside electricity, water, and telecommunications. For the (re)insurance sector, that shift matters: data centers create a new concentration of property, casualty, and business interruption exposure, while also amplifying wider risks in energy, climate, and water systems.

The first issue is scale. Demand for digital infrastructure is accelerating rapidly, and the capital at stake is enormous. Industry estimates suggest global digital infrastructure value could rise from roughly US$0.5 trillion in 2025 to US$4.5 trillion by 2034. That growth is being driven in part by AI workloads, which require large, power-intensive facilities. 

For re/insurers, that expansion creates a concentration challenge as well as a growth opportunity. A single campus can combine high-value buildings, sophisticated cooling and electrical infrastructure and increasingly expensive computing equipment, while supporting multiple customers and services. The result is significant value concentrated at individual locations, alongside dependencies capable of extending losses well beyond the site itself.

The grid bottleneck

But the energy challenge is immediate. Data centers depend on continuous, reliable power, and the race to meet demand is colliding with an already constrained grid, aging transmission assets, and long lead times for new generation. In many regions, the bottleneck is not land or demand, but rather grid capacity.

That constraint is already influencing where facilities can be built and how they are powered. Longer grid-connection times are encouraging developers to consider on-site generation and energy storage, adding another layer of engineering, operational and potentially fire risk to an already complex exposure.

That creates a new layer of insured risk. Large data centers are highly sensitive to outages, which can lead to service disruption, lost revenue, contractual penalties, and reputational damage. For insurers and reinsurers, those losses are not limited to physical damage. They also include business interruption, delay in start-up, cyber-related outages, and contingent losses tied to equipment failure or power instability. A major outage in a hyperscale facility can cascade across customers and sectors, making accumulation management especially important.

Complex risk equation 

Construction is another major exposure area. Data centers are expensive, technically complex, and often built under compressed schedules. That means heightened exposure to construction all-risks losses, project cargo losses, and delay in start-up claims. The labor and supply chain pressures highlighted in the source material also matter – shortages in skilled trades, rising commodity costs, and energy transition constraints can push up rebuild and replacement costs. For underwriters, this means higher sums insured, longer project timelines, and more volatile claims severity.

“Data centers are no longer simply a real estate or technology story. They are an accumulation, resilience, and systemic risk story.”

The transition from construction to operation is particularly important. Testing and commissioning bring complex electrical, cooling and backup systems together for the first time, meaning relatively small failures can potentially delay completion or expose weaknesses that only become apparent once a facility approaches operating capacity.

Outages can cascade

Water is becoming an equally important issue. Cooling requirements can place substantial pressure on local water supplies, especially in stressed regions. In the UK and parts of southern Europe, scrutiny is intensifying over where data centers are located and how much water they consume. For (re)insurers, this opens a new dimension of environmental and regulatory risk. Water scarcity can affect operational resilience, community relations, permitting, and loss modeling — especially when facilities are concentrated in areas already facing drought or restrictions.

Finally, data centers sit at the intersection of climate and infrastructure risk. Severe weather, solar storms, and grid fragility can all trigger outages or damage. The industry’s dependence on uninterrupted power also raises questions about backup generation, emissions compliance, and the resilience of local energy systems. In that sense, data centers are not just insured assets; they are systemically important nodes in a broader network.

For the re/insurance sector, the message is clear: data centers are no longer simply a real estate or technology story. They are an accumulation, resilience, and systemic risk story. Underwriters, brokers, and risk managers who understand their energy, water, cyber, and business interruption dependencies will be best placed to support the market as this asset class continues to expand.

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